United Continental Posts A Solid Quarter Despite Last Week’s PR Tragedy

United Continental (NYSE:UAL) posted quite a solid quarter this time around, starting FY 2017 with a bang. The company managed to beat on revenues and earnings, despite falling short on earnings significantly year-on-year on the back of higher labor costs and increased fuel costs. The company posted revenues of $8.4 billion, beating the expected $8.36 billion, while earnings came in at $0.41 per share, beating the consensus estimate by almost $0.04. This sent shares up by almost 2.5% in after-hours trading, despite the recent PR debacle that’s taken social media by storm, helping the company recover some of the losses in the previous week.

In addressing the elephant in the room, CEO Oscar Munoz, began the call by apologizing yet again for the events that transpired last week, while highlighting changes in policy that will prevent such incidents from taking place in the future.

Unit revenues fell within the forecast range in the quarter, remaining relatively flat in comparison to the same quarter last year. The main reason behind the lower-than-expected decline in unit revenues was the robust performance by the carrier domestically due to stronger close-in bookings and yields in February and March, and in Latin America. However, the Atlantic and the Pacific regions continued to remain a headwind. That said, the company expects unit revenues to turn positive in Q2. If things go to plan, this will mark the first time since 2015 that this key metric will mark a positive growth.

In terms of costs excluding fuel and profit sharing, the company expended approximately 5% more in the first quarter as opposed to the same period a year ago. The higher costs are attributable to the ratified labor contracts penned early last year. The higher costs are expected to persist well into 2017. The company expects an increase in costs by about 4-5% in the coming quarter. Despite this, the company has reaffirmed that non-fuel unit costs are expected to increase between 2.5% and 3.5% for the full year.

Going forward, the company is extremely confident regarding its performance in 2017. With higher capacity growth and positive PRASM kicking in as early as next quarter, United hopes to post yet another record year. As United implements the comprehensive growth plan laid out by its CEO Oscar Munoz in 2017, we can expect additional benefit to accrue to its earnings.

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